Not to be released until 8:50 a.m.
Japan Standard Time on Tuesday,
December 27, 2011.

December 27, 2011
Bank of Japan

Minutes of theMonetary Policy Meetingon November 30, 2011(English translation prepared by the Bank's staff based on the Japanese original)

Please contact the Bank of Japan at the address below in advance to request permission
when reproducing or copying the content of this document for commercial purposes.

Secretariat of the Policy Board, Bank of Japan
P.O. Box 30, Nihonbashi, Tokyo 103-8660, Japan

Please credit the source when quoting, reproducing, or copying the content of thisdocument.

A Monetary Policy Meeting of the Bank of Japan Policy Board was held in the
Head Office of the Bank of Japan in Tokyo on Wednesday, November 30, 2011, from 8:31
p.m. to 9:43 p.m.1
Policy Board Members Present2
Mr. M. Shirakawa, Chairman, Governor of the Bank of JapanMr. H. Yamaguchi, Deputy Governor of the Bank of Japan
Mr. K. G. Nishimura, Deputy Governor of the Bank of JapanMr. S. Nakamura
Mr. H. Kamezaki
Mr. Y. Morimoto
Ms. S. Shirai
Mr. K. Ishida

Government Representatives Present
Mr. Y. Fujita, Senior Vice Minister of Finance, Ministry of FinanceMr. H. Ogushi, Parliamentary Secretary of Cabinet Office, Cabinet Office

Reporting Staff
Mr. K. Yamamoto, Executive Director
Mr. H. Nakaso, Executive Director (Assistant Governor)
Mr. M. Amamiya, Executive Director
Mr. N. Kinoshita, Executive Director
Mr. K. Momma, Director-General, Monetary Affairs Department
Mr. T. Umemori, Deputy Director-General, Monetary Affairs Department
Mr. K. Kamiyama, Head of Policy Planning Division, Monetary Affairs Department

1

The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting
held on December 20 and 21, 2011 as "a document describing an outline of the discussion at themeeting" stipulated in Article 20, paragraph 1 of the Bank of Japan Act of 1997. Those present arereferred to by their titles at the time of the meeting.
2
An absent member of the Policy Board, Mr. R. Miyao, submitted via the chairman his written
opinion on matters related to the meeting's agenda, in accordance with Article 5, paragraph 2 of theRules concerning Policy Board Meetings.

1Mr. S. Aoki, Director-General, Financial Markets Department
Mr. E. Maeda, Director-General, Research and Statistics Department
Mr. T. Sekine, Head of Economic Research Division, Research and Statistics Department
Mr. H. Ono, Director-General, International Department

Secretariat of the Monetary Policy Meeting
Mr. Y. Iino, Director-General, Secretariat of the Policy Board
Mr. T. Tachibana, Director, Deputy Head of Planning and Coordination Division,
Secretariat of the Policy Board
Mr. H. Chida, Head of Policy Infrastructure Division, Monetary Affairs Department
Mr. M. Minegishi, Senior Economist, Monetary Affairs Department
Mr. T. Kawamoto, Senior Economist, Monetary Affairs Department

2

I. Remarks on the Purpose of the Unscheduled Monetary Policy Meeting
The chairman first provided the following explanation for calling an unscheduled
Monetary Policy Meeting.
(1) Global financial markets were under heavy strain on the back of the sovereign debt
problems in Europe, and central banks had been exchanging views on how to respond to
this situation. As a result of these discussions, central banks had judged that it was
desirable to take coordinated action consisting of the following: lowering the interest
rates on the U.S. dollar funds-supplying operations and extending the effective period ofsuch operations, as well as expanding the network of currency swap agreements toinclude non-domestic currencies other than the U.S. dollar.

The coordinated action

would be made public today, November 30, 2011.
(2) Financial conditions in Japan continued to ease and Japanese financial institutions were
not facing difficulty with funding in foreign currencies.

However, with a correlation

between domestic and overseas markets increasing, the possibility could not be ruledout that Japan's financial system, and consequently financial conditions, would be
adversely affected should conditions in global financial markets deteriorate further.

Inthis situation, it would be appropriate for the Bank to take coordinated action to addresspressures in financial markets together with other central banks.

II. Summary of Staff Reports on Financial Market Developments
Global financial markets continued to be under heavy strain since the previous
Monetary Policy Meeting held on November 15 and 16, 2011, on the back of the sovereign
debt problems in Europe.
Long-term interest rates and sovereign credit default swap (CDS) premiums in
Europe had been rising even for countries other than those peripheral ones facing serious
fiscal concerns. Long-term interest rates in the Unites States remained more or less flat
due mainly to firm demand for U.S. government bonds that were regarded as safe assets,
despite the fact that an increasing number of economic indicators turned out to be better
than the market had expected. Long-term interest rates in Japan had been rising somewhat,reflecting the effects of financial institutions' profit-taking sales of Japanese government
bonds.

3

With regard to U.S. dollar funding conditions through foreign exchange swap
markets, the three-month cost of swapping euros into U.S. dollars had risen to the 1.5-2.0
percent range, significantly exceeding interest rates on the U.S. dollar funds-supplying
operations, as there were concerns about counterparty risks in relation to European financial
institutions that held a large amount of government bonds issued by those countries facing
serious fiscal concerns. Japanese financial institutions were not facing difficulty withfunding in foreign currencies despite the gradual rise in the three-month cost of swapping
yen into U.S. dollars.
Stock prices were picking up somewhat in Japan, the United States, and Europe
reflecting expectations of policy responses by the European authorities. In the foreignexchange market, however, the nominal effective exchange rate of the euro had beensomewhat weak on the back of the sovereign debt problems in Europe.

III. Summary of Staff Reports on Coordinated Central Bank Action and the Bank ofJapan's Action
The staff explained that the Bank's decision at this meeting to take the following
three actions, in cooperation with the Bank of Canada, the Bank of England, the European
Central Bank, the Federal Reserve, and the Swiss National Bank, could be deemed effective
in maintaining financial market stability at home and abroad through the enhancement of
the central banks' capacity to provide liquidity to the global financial system.
The first action would involve lowering the rates on the U.S. dollar liquidity swap
arrangements and on the U.S. dollar funds-supplying operations by 0.5 percentage point for
operations to be conducted from December 5, 2011.

The new lending rate on theoperations would therefore be the prevailing U.S. dollar overnight index swap (OIS) market
rate that corresponds to the lending duration, plus 0.5 percentage point.

It had been

pointed out that, in some countries abroad, since the spread between interest rates on the
U.S. dollar funds-supplying operations and market rates was relatively wide, not a few
financial institutions were reluctant to use the operations for fear of incurring reputationalrisk, namely, that their creditworthiness might be regarded as having deteriorated to theextent that they would have difficulty with funding in markets should it be revealed thatthey had participated in the bidding of the operations. In view of such developments
abroad, the aim of lowering the interest rates on the U.S. dollar funds-supplying operations

4

would be to strengthen their effectiveness in stabilizing the U.S. dollar funding rates, byenhancing their role as a backstop.
The second action would be to extend the effective period of the U.S. dollar
liquidity swap arrangements, due to expire on August 1, 2012, by six months through to
February 1, 2013. In order to do so, it was necessary for the Bank to make amendments at
this meeting to relevant principal terms and conditions, including those for its U.S. dollar
funds-supplying operation against pooled collateral.
The third action, as a contingency measure, would be to expand currency swap
arrangements to include U.S. dollars, Canadian dollars, pounds sterling, yen, euros, andSwiss francs, and thereby establish bilateral liquidity swap arrangements among the six
central banks -- that is, the aforementioned five central banks and the Bank of Japan. Sucharrangements would enable the Bank to provide yen to the five central banks if required.
They would also allow the Bank to receive liquidity, should it be needed, in the five foreign
currencies including the already available U.S. dollar.

At present, there was no need tooffer liquidity in non-domestic currencies other than the U.S. dollar, but it was deemed
prudent to make the necessary swap arrangements so that liquidity support operations could
be put into place quickly should the need arise. The Bank would work to establish theswap arrangements with the other five central banks, taking into account the market
conditions.

IV.

Summary of Discussions by the Policy Board

A. Discussions on Coordinated Central Bank Action and the Bank of Japan's Action
Members agreed that global financial markets were under heavy strain on the backof the sovereign debt problems in Europe, and that the funding conditions of European
financial institutions were deteriorating.

They shared the view that, considering thedifficulty in solving the sovereign debt problems in Europe, it was likely that pressures in
the markets would persist over a protracted period.

Members were of the view that

financial conditions in Japan continued to ease and Japanese financial institutions were notfacing difficulty with funding in foreign currencies.

They continued that, with anincreasing correlation between domestic and overseas markets, the possibility could not be
ruled out that Japan's financial system, and consequently financial conditions, would be
adversely affected should conditions in global financial markets deteriorate further. Based5

on this discussion, members concurred that, in order to maintain financial market stability athome and abroad, it was appropriate at this time for central banks to take coordinated action
to enhance their capacity to provide liquidity to the global financial system before theyear-end, when demand for funds tended to increase.

A few members said that the Bank

should take great care in its communication with markets, so that the announcement of
coordinated action would not arouse unnecessary suspicions regarding foreign currency
funding conditions for Japanese financial institutions.
Members agreed that the lowering of interest rates on the U.S. dollar
funds-supplying operations would strengthen the operations' ability to stabilize the U.S.
dollar funding rates and enhance their role as a backstop. With regard to the problem that
not a few financial institutions overseas were reluctant to make use of such operations by
central banks for fear of reputational risk, a few members were of the view that the loweringof interest rates on the operations would make financial institutions less reluctant to usethem, because the merits of doing so would increase even for those financial institutions
that did not face problems in terms of creditworthiness. In response, some members
expressed the view that reputational risk associated with the use of the operations was likely
to diminish to some extent, but that the degree was highly uncertain.

A different member

noted that it was also necessary to pay attention to the possibility that financial institutions
would become casually dependent on the operations with the lowering of interest rates onthem.
Regarding the extensions of the effective periods of the U.S. dollar liquidity swap
arrangements and the U.S. dollar funds-supplying operations, some members said that theywould have a certain effect in terms of relieving funding concerns in the market because
they would enable the financial institutions to continue to use the operations for more than a
year.
Regarding the establishment of bilateral liquidity swap arrangements among thecentral banks that would enable the provision of liquidity in any of their currencies in
addition to the already available U.S. dollar, members shared the view that at present there
was no need in Japan for the Bank to offer liquidity in foreign currencies other than the U.S.
dollar, such as the euro, nor was there a need for overseas central banks to offer liquidity inyen. They continued that there was in fact no demand from market participants for suchfunds provision. Members then shared the view that establishing bilateral liquidity swap

6

arrangements among the central banks would help to maintain market stability as acontingency measure.

B. Discussions on Monetary Policy for the Immediate Future
Regarding the guideline for money market operations for the intermeeting periodahead, members agreed that it was appropriate to maintain the current guideline that the
Bank would encourage the uncollateralized overnight call rate to remain at around 0 to 0.1
percent. They shared the view that it would be appropriate to hold thorough discussions
on the economic and price situation at the next Monetary Policy Meeting to be held on
December 20 and 21, 2011, after closely examining important indicators to be released suchas the Financial Statements Statistics of Corporations by Industry, Quarterly, the revised
estimates of GDP, and the Tankan (Short-Term Economic Survey of Enterprises in Japan).

V. Remarks by Government Representatives
The representative from the Ministry of Finance made the following remarks.
(1) The government was highly concerned that the rise in anxiety over debt problems in
Europe was posing significant downside risks to the Japanese economy.
(2) The government welcomed the Bank's proposal made at this meeting to enhance theU.S. dollar funds-supplying operation against pooled collateral as an appropriate
measure that would form part of central banks' coordinated action to ensure financial
stability, in view of the current situation where strains in U.S. dollar short-term funding
markets in Europe were intensifying.
(3) The government hoped that the Bank would continue taking decisive actions while
paying close attention to developments in the financial markets at home and abroad, as
well as considering the effects on the Japanese economy of the developments inoverseas economies and the foreign exchange market.

The representative from the Cabinet Office made the following remarks.
(1) Taking into account the recent fiscal problems in Europe and the situation in global
financial markets, the government viewed the proposed coordinated action by the six
central banks as appropriate measures that would contribute to maintaining market
stability. The government deemed it important that the Bank provide a sufficient7explanation to the market of the background to the decision on the coordinated action
and its aim.
(2) The government would continue to pay close attention to the developments in global
financial markets as well as their effects on the Japanese economy, and would respond
appropriately as necessary.
(3) The government also expected the Bank to underpin the economy through appropriate
and decisive conduct of monetary policy while sharing concerns with it regarding thesituation as well as sufficiently exchanging views and keeping close contact.

VI.

Votes

A.

Vote on "Amendment to 'Principal Terms and Conditions for U.S. Dollar
Funds-Supplying Operations against Pooled Collateral'"Based on the above discussions, "Amendment to 'Principal Terms and Conditions

for U.S. Dollar Funds-Supplying Operations against Pooled Collateral,'" which wasnecessary to extend the effective periods of the existing U.S. dollar liquidity swap
arrangement with the Federal Reserve and the U.S. dollar funds-supplying operation against
pooled collateral, was put to a vote.

Members voted unanimously to approve theamendment and agreed that the decision should be made public.

B.

Discussion on the Public Statement Entitled Coordinated Central Bank Action to
Address Pressures in Global Money Markets
Members discussed the statement Coordinated Central Bank Action to Address

Pressures in Global Money Markets, which included a description of the coordinated central
bank action and the Bank's action, and put it to a vote. The Policy Board decided the text
by a unanimous vote. It was confirmed that the statement would be released at the sametime as those by the other central banks (see Attachment 1).

C. Vote on the Guideline for Money Market Operations
To reflect the view of members, the chairman formulated the following proposal
and put it to a vote:

8

The Chairman's Policy Proposal on the Guideline for Money Market Operations:
The guideline for money market operations for the intermeeting period ahead will be as
follows, and will be made public by the attached statement (see Attachment 2).
The Bank of Japan will encourage the uncollateralized overnight call rate
to remain at around 0 to 0.1 percent.

Votes for the proposal: Mr. M. Shirakawa, Mr. H. Yamaguchi, Mr. K. G. Nishimura,
Mr. S. Nakamura, Mr. H. Kamezaki, Mr. Y. Morimoto, Ms. S. Shirai, and Mr. K.
Ishida.
Votes against the proposal: None.
Absent: Mr. R. Miyao.

VII. Timing for Approval of the Minutes of the Monetary Policy Meeting
The minutes of this meeting would be approved at and released after the Monetary
Policy Meeting to be held on December 20 and 21, 2011. The Policy Board confirmedthat the minutes of the previous Monetary Policy Meeting held on November 15 and 16,
2011 would also be approved at and released after the Monetary Policy Meeting to be held
on December 20 and 21, 2011, as originally scheduled.

9

Attachment 1
November 30, 2011
Bank of Japan

Coordinated Central Bank Action to Address Pressures in Global Money Markets

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank,
the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions
to enhance their capacity to provide liquidity support to the global financial system. The
purpose of these actions is to ease strains in financial markets and thereby mitigate theeffects of such strains on the supply of credit to households and businesses and so help
foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar
liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar
overnight index swap (OIS) rate plus 50 basis points.3 This pricing will be applied to all
operations conducted from December 5, 2011.

The authorization of these swap

arrangements has been extended to February 1, 2013. In addition, the Bank of England,
the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue
to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary
bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in
any of their currencies should market conditions so warrant. At present, there is no need
to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks
judge it prudent to make the necessary arrangements so that liquidity support operations
could be put into place quickly should the need arise. These swap lines are authorizedthrough February 1, 2013.
3

Overnight index swap is a type of swap arrangement that exchanges the overnight interest rateover a specified period for a certain fixed rate. Its rate reflects market perception of the future
overnight interest rates over the corresponding period on average.

10

Bank of Japan Action
At the unscheduled Monetary Policy Meeting held today, the Bank of Japan, in cooperation
with the aforementioned central banks, decided to take measures to address recent pressuresin global money markets.

Specifically, interest rates on the fixed-rate U.S. Dollar

funds-supplying operations currently conducted by the Bank of Japan will be reduced by
0.5 percentage points, for operations conducted from December 5. The new rate will be aprevailing U.S. dollar overnight index swap market rate that corresponds to the duration of
the loan plus 0.5 percentage points.4 The expiration of the existing U.S. dollar liquidity
swap arrangement with the Federal Reserve and the concomitant U.S. Dollar
funds-supplying operations has been extended by six months through to February 1, 2013.
In addition, the Bank of Japan will establish reciprocal currency swap arrangements withthese central banks that will be available until February 1, 2013. Such arrangements will
enable the Bank of Japan to provide Japanese yen to these five central banks if required.
They will also allow the Bank of Japan to receive liquidity, should it be needed, in fivecurrencies including the already available U.S. dollars.

Financial conditions in Japan have continued to ease and Japanese financial institutions do
not face difficulty with funding in foreign currencies. There is, however, a possibility thatJapan will be adversely affected, should conditions in global financial markets deteriorate
further. The Bank of Japan will continue to maintain financial market stability in close
cooperation with other central banks.

Information on Related Actions Being Taken by Other Central Banks
Information on the actions to be taken by other central banks is available on the following
websites:
Bank of Canada (http://www.bankofcanada.ca)
Bank of England (http://www.bankofengland.co.uk)
European Central Bank (http://www.ecb.int)
Federal Reserve (http://www.federalreserve.gov)
Swiss National Bank (http://www.snb.ch)
4Interest rates on fixed-rate U.S. Dollar funds-supplying operations are set by the Federal Reserve
Bank of New York taking account of a prevailing U.S. dollar overnight index swap market rate that
corresponds to the duration of the loan. These are the same interest rates that apply to theaforementioned swap agreement.

11

Attachment 2

November 30, 2011
Bank of Japan

Statement on Monetary Policy

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japandecided, by a unanimous vote,5 to set the following guideline for money market operations
for the intermeeting period:

The Bank of Japan will encourage the uncollateralized overnight call rate
to remain at around 0 to 0.1 percent.

5

Voting for the action: Mr. M. Shirakawa, Mr. H. Yamaguchi, Mr. K. G. Nishimura, Mr. S.
Nakamura, Mr. H. Kamezaki, Mr. Y. Morimoto, Ms. S. Shirai, and Mr. K. Ishida.
Voting against the action: None.
Absent: Mr. R. Miyao.

12